Many centralised firms have gone bankrupt in the last year, but the DeFi ecosystem has stayed strong.
That is not to imply that the numerous insolvencies in the centralised industry have spared DeFi players—protracted bear market conditions and harm to customer trust in crypto assets hurt—but there is a silver lining.
What distinguishes DeFi is that it is “more resilient, transparent, and scalable than CeFi,” according to Ryan Rasmussen, a crypto research analyst at Bitwise.
“Events like this highlight the trade-offs that customers make when choosing between centralised and decentralised services,” he says. “It’s a difficult—and costly—lesson to learn, but it’s vital. In the long run, DeFi will benefit from this.”
As the year comes to a close, Blockworks looks at some of the key patterns that may appear in 2023 as DeFi strives to recover from the bear market.
Push toward real-world assets
Real-world assets (RWA) have already helped release considerable quantities of liquidity and utility by migrating on-chain.
Large decentralised lending players like MakerDAO have proposed investing in US Treasurys and corporate bonds, as well as partnering with regular banks to issue loans with RWAs as collateral.
These movements are likely to become more widespread in 2023, as many industry participants already see RWAs as a great way to combine traditional institutions with DeFi liquidity.
According to Marcus Leanos, co-founder and chief investment officer of Adapt3r, partnerships with banks bring together one of the most potential DeFi use cases, describing it as “something that might scale and disrupt the real-world asset sector and connect DeFi to the banking system.”
Greater stablecoin adoption
Despite the bear market, stablecoins such as Circle’s USDC and Maker’s DAI continue to rank among the top cryptocurrencies in terms of market capitalization.
Stablecoins are among the most widely used cryptocurrencies, with a wide range of applications. Japan, a rather strict cryptocurrency jurisdiction, recently declared that the ban on the domestic distribution of foreign-issued stablecoins would be repealed in 2023. These positive changes to stablecoin trading that we are seeing now have the potential to accelerate stablecoin adoption and cut time and costs on international transfers in the coming year.
Focus on layer-2 scaling and ZK technology
The Ethereum Merge was one of the year’s most talked-about events, but gas fees and transaction speed remain barriers to widespread adoption.
As one of the world’s largest networks enters its next generation, called “the surge,” zero-knowledge (ZK) technologies and layer-2s will remain a priority for DeFi engineers in the coming year.
A ZK proof is a digital verification mechanism that will dramatically increase blockchain network scalability and performance. The final result will be enhanced ecosystems that can handle a greater volume of transactions in less time.
Security and Compliance
Security will most certainly be a major priority in the next few years.
ZK proofs will not only enhance transaction speed and prices but will also significantly increase the security of on-chain transactions.
Over the last year, billions of dollars have been stolen on DeFi platforms. Enough so that the FBI advised investors to be cautious of the space in general.
It will be difficult to bring the masses aboard unless initiatives to increase security in space over the next few years bear fruit.
Though regulatory ambiguity remains an issue, DAOs have mainly avoided difficulties this year.
FactoryDao’s Nick Almond, also known as drnick on Twitter, believes that consistent performance combined with structural maturity could result in a “massive departure out of centrally organised institutions into decentralised ones.” A possible victory for DAOs.
The growth of DAO governance in 2023 may strengthen these organisations’ legitimacy and eventually make decision-making in the field far more transparent, averting another FTX-like collapse.